The S&P 500 may be hitting record highs at a pace of more than once every other day, but would you believe that there are still Industry Groups trading below their 50-day moving averages?  The chart below shows the rolling percentage of Industry Groups trading above their 50-DMAs over the last several years, and the current reading stands at 91.7%.  Over the last five years there have been numerous periods where a higher percentage (and even 100%) of Industry Groups traded above their 50-DMAs, and the most recent was back in July.

So which are the two outlier groups that are still below their 50-DMAs?  Well, when everyone seems to be taking an offensive posture in the market, it’s only natural that defensive sectors would be lagging, and two of the most defensive-oriented sectors in this yield-hungry world we live in are Utilities and Real Estate.  Even these two groups, though, are only about 1% below their 50-DMAs, so all it will take is one or two good days for these groups to get them back over the hump.  On the upside, Health Care Equipment & Services is the furthest above its 50-DMA at 7.72%.

The S&P 500 as a whole is currently just over 4% above its 50-DMA.  What’s interesting to note here, though, is that just 9 of the 24 Industry Groups are further above their 50-DMAs while 15 are not above their 50-DMAs by as much as the S&P 500.  In terms of YTD returns, the S&P 500 is currently sitting on a gain of more than 25% YTD.  Leading the way higher this year, Tech Hardware (Apple) has rallied just under 48%, while Semis are up just over 40%. Behind these two leaders, four other Industry Groups are up over 30% YTD.  While there is no downside on a YTD basis, Energy has been the biggest laggard and is just barely hanging on to a YTD gain.  If Energy can’t hang onto a YTD gain in a year where the S&P 500 gains more than 25%, Energy investors may need to wear paper bags over their heads.  Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

The past couple of weeks’ releases for jobless claims have been a bit concerning.  Last week and the week before, initial jobless claims ran up to 227K. That was not only the highest level since June 21st’s 229K, but it also marked a distinct breakout above the past several months’ range.  Released a day earlier than usual due to the Thanksgiving holiday tomorrow, this week’s claims gave reason to be thankful as they came in at a much healthier level falling to 213K compared to forecasts of a decline to 221K. That 15K decline was the largest since May 10th’s 16K drop.  This has also led the indicator to fall back into the middle of the range that it had broken out of in the prior two weeks.

Given this week’s decline, the four-week moving average has also fallen.  The moving average, which helps to smooth out the week to week fluctuations, is now at 219.75K, and it is the first time the moving average has dropped in three weeks. This is another welcome sign as recent readings have been at the upper end of its downtrend channel.

On a non-seasonally adjusted (NSA) basis, claims data was not quite as rosy.  NSA claims rose this week by 24.5K up to 252.4K.  While week-over-week upticks could be expected this time of year due to seasonal factors, the 33.7K increase versus last year’s reading was more of a surprise. Not only was the NSA data higher than it was one year ago, but it is higher than the current week of the year in 2017 as well. Additionally, this was the largest YoY increase for any week since December 6th, 2013 when it rose 34.2K.

While those increases are notable, it should still be taken with a grain of salt as one week does not make a trend and it could come down to seasonal factors including the timing of Thanksgiving.  This time of year has historically been volatile for claims, meaning comparisons of the same week number between different years is not an exact science.  To highlight the volatility of this year, in the past decade November through January typically sees some of the largest week-over-week changes (in absolute terms) of the year.  This week of the year (light blue bar) is no exception as it too has typically seen a larger than average move than the average for all weeks of the year (red line). Perhaps a better read on how things stack up versus one year ago will come several weeks down the line once claims have put in their seasonal peak.

Additionally, that concerning uptick in the NSA data is idiosyncratic with other labor data released today.  Continuing jobless claims experienced a substantial improvement this week as they fell to 1640K compared to forecasts of 1691K and last week’s revised 1697K.  That 57K decline was the largest since a 62K decline in April of this year; around the time of multidecade lows for claims. This week’s print not only broke to new lows of the past couple of years (inlaid chart below), but it was also the lowest reading on continuing claims since early August of 1973. As shown in the second chart, Continuing claims are down 55K relative to last year, which is the largest YoY decline since July.  It also provides a nice break from the increases that have been observed over the past few weeks for the first time this cycle (which we discussed last week).  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Bespoke co-founder Paul Hickey appeared on CNBC’s Squawk Box this morning to discuss the current market backdrop.  To view the segment click on the link below.

In terms of relative strength, it’s been a long decade for global equities outside of the United States.  In the aftermath of 9/11 through most of the first decade of the 21st Century, US equities lagged their global peers as European economic growth outpaced the United States. Since 2007, though, global equities have consistently underperformed the S&P 500.  While there have been brief periods where international equities had their time in the sun, clouds have always been quick to appear.

This past summer, the relative strength of the MSCI ex US index dropped to its lowest level since at least 1999. From the lows in August, we started to see another period where capital shifted back towards international stocks, but as shown in the lower chart, as the S&P 500 has been hitting record highs just about every other day in the last month, their global peers haven’t been able to keep up.  As a result of the underperformance, the nascent uptrend for international equities has started to breakdown.  If the prior low in relative strength from the summer doesn’t hold up, all of the goodwill that international stocks had built up in recent weeks will quickly melt away. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

As equities run to all-time highs, valuations are at a fairly interesting point.  As shown in the chart below using data from our Daily Sector Snapshot included with our Morning Lineup and The Closer, most sectors’ valuations are at the upper end of the past ten years’ range. Four sectors, Consumer Discretionary, Communication Services, Utilities, and Technology all have trailing P/E ratios in the 90th percentile or higher of the past ten years’ readings.

Since the S&P 500 established its first all-time high since July on October 28th, Health Care and Financials have been two of the strongest performers rising 6.68% and 4.35%, respectively.  Despite these runs, both of these sectors still have reasonable valuations relative to the past decade. For Financials, the current trailing price-to-earnings ratio is in the 42nd percentile of all days of the past ten years. No other sector has such a low reading although Materials and Energy are on the lower end relative to other sectors. On the other hand, Utilities and Technology have some of the highest valuations of the past ten years with the current P/E in the 97th and 99th percentiles, respectively.

As shown in the chart below, most of the last 9-12 months has seen valuations for Utilities consistently in the uppermost range of the past ten years as investors chased yield in a low interest rate environment. But as risk-free rates have risen more recently, valuations for Utilities have pulled back a bit as price has slid. While there have been other periods in the past ten years where Utilities’ P/E ratio was similarly elevated, arguably only 2016/2017 saw it remain at the upper end of the ten-year range as consistently as has been the case this year.

For Technology it is a whole different story. The P/E for the sector got crushed this time last year and after plummeting to the 31st percentile, it is has rebounded to the highest levels of the past ten years.  The only other time that the sector traded at a similar premium relative to the past decade’s range was back in early 2018. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.